Daily Archives: September 25, 2017

The Risk in CoCo Bonds You Could Be Missing

Contingent Convertible bonds – known as “CoCos” – have grown popular among European (and increasingly Asian) financial institutions since the 2008-09 financial crisis. They offer attractive yields but come with a challenge: figuring out when a CoCo bond is at risk of being converted to equity, which effectively can eradicate the bond’s value.

The answer, as MSCI’s Gergely Szalka writes in a new blog post, may lie in having a dedicated risk model that picks up on early warning signs. Gergely shows how MSCI’s CoCo pricing podel would have detected the rising risk that preceded this year’s collapse of Spain’s Banco Popular ahead of a standard risk model.

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